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The food-on-the-go firm faces some big challenges as a new boss prepares to take over
Thursday 13 Jan 2022 Author: Tom Sieber

Greggs’ (GRG) products might be good value, but its shares are not at the current price of £31.71. While this is a great business, investors need to wait for a cheap entry point before considering the shares.

The company has bounced back from the pandemic and enjoyed a very good 2021. Research by Lumina Intelligence suggests Greggs even overtook McDonald’s to become the market leader in UK food-to-go in the 12 weeks to 28 November with a 10.7% share.

Sadly, it seems as if all the good news is fully baked into its share price, and then some. The shares now trade on 28.8 times forecast earnings for the January 2023 financial year, having nearly trebled from their September 2020 lows below £12 in the wake of the pandemic. In Shares’ opinion, Greggs should trade below a price to earnings ratio of 25-times.

Its shares fell 6% on 6 January despite saying its full-year results would be slightly ahead of previous forecasts. The slump reflected an extremely demanding valuation for what remains, for all its attributes, a single-digit margin business in a competitive and economically sensitive sector. Also not helping sentiment was some caution on recent trading amid the emergence of Omicron.

Ambitious five-year targets, set by outgoing CEO Roger Whiteside and his management team in October 2021, will have to be delivered by his replacement, Roisin Currie. An internal appointment, she will assume the reins in May 2022 with Whiteside having completed a highly successful nine-year stretch.

Typically, an incoming chief executive will look to reset expectations to set a lower bar which they can clear and thereby win over the market.

Instead, Currie must execute on the existing plan to double turnover to around £2.4 billion by 2026 by expanding to 3,000 sites, from the current 2,181. She must also oversee the development of new opportunities including deliveries and evening walk-in sales as well as the development of a loyalty-based app. These initiatives will require significant investment.

Greggs could find achieving its goals challenging for several reasons. In the near term the company could be affected by supply chain and staffing issues while in the medium to longer term a rising cost of living for customers and a potentially permanent shift towards hybrid working could stymie its ambitions.

If people aren’t in the office as much, then footfall for Greggs’ town and city centre outlets will be lower. Mitigating this to a certain extent is Greggs’ strong footprint in more suburban and residential areas where it could benefit from so-called ‘food to go home’ sales.

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